Wednesday, November 11, 2015

A Perfect Storm of central banker speeches | High short-term volatility likely in the Forex market

Today sees
not one, but two of the world’s most influential central bankers, Mario Draghi
(Eurozone) and Janet Yellen (USA) make speeches in their respective
jurisdictions, to be followed by a raft of members of the US Federal Reserve. And
Mr. Draghi will be speaking twice, initially at 08:30 GMT as President of the
ECB before the Committee on Economic and Monetary Affairs (ECON), at the EU
Parliament in Brussels, and then at 10:30 GMT in the same forum but in his
capacity as Chairman of the European Systemic Risk Board (ESRB), a body that
was set up in the wake of the Global Financial Crisis to monitor for, and deal
with, any issues that may impact on the stability of the financial system.

This follows
a speech that Mr. Draghi gave yesterday at a Bank of England event in London that
was organised to discuss banking regulation. He said, unsurprisingly given his
known standing in this matter, that ever closer integration was needed for the
EU banking and capital markets. He said nothing yesterday about what we wanted
to hear: whether or not his central bank is likely to accelerate Quantitative
Easing in the Eurozone in December. To complicate matters, yesterday was a
holiday in the US (Veteran’s Day), so trading on the Forex markets was thin.

Then, later
in the day today, around the open in New York, Ms. Yellen will speak at the
Federal Reserve Board sponsored “Monetary Policy Implementation and Transmission
in the Post-Crisis Period” conference in Washington. Other speakers at this
event include her colleagues in the Federal Reserve, Bullard, Lacker, Fischer
(Vice chair of the Board of Governors) Evans and Dudley. Any one of these is capable
of making comments that could impact the Forex market, and they even have the
potential to be contradictory of one another.

High short-term volatility likely in
the Forex market

Historical
research using the Mandelbrot algorithmic routine indicates that the market is
highly sensitive to speeches by central bankers. Not only that, but the
perceptions of different market participants can vary, both in the minutes and
hours that follow the words used, and among those who have the capacity to move
the market. On a day like today that could lead to high short-term volatility.